Defendants’ Failure To Disclose Prohibitively Expensive Arbitration Fees To Low Income Plaintiffs Weighed Against Enforcement Of The Arbitration Provision.
When 61 “primarily low-income mobilehome owners” sued Wildwood Mobile Home Country Club (“Westmont”), naturally Westmont moved to compel arbitration. After the trial court denied the motion, Westmont appealed. Unsuccessfully. Penilla v. Westmont Corporation, B262097 (2/4 9/9/16) (Manella, Epstein, Willhite).
The Court of Appeal affirmed the order denying arbitration because the arbitration provision was procedurally unconscionable: it failed to disclose “prohibitively expensive arbitration fees” and it was not provided in a Spanish language copy, nor explained to persons who did not understand written English. In addition, the arbitration provision was substantively unconscionable because (i) “it imposed arbitral fees that were unaffordable or would have substantially deterred respondents from asserting their claims” and (ii) there were “unreasonably shortened limitations periods.”
COMMENT: There are now a number of California cases in which language confusion has become a factor in finding procedural unconscionability. You can find my discussion of several of those cases by using the left-hand sidebar of this website and searching for “Spanish” in the “Search This Blog” rectangle.
The California courts have been sorting through the problem of figuring out when to take into consideration the ability of a person to pay for arbitration. California Code of Civil Procedure section 1284.3(b)(1) entitles “indigent consumers” to qualify for a fee waiver. The amount of income earned by the plaintiffs – average gross annual income of $35,600, and median annual income of approximately $32,000 in Penilla – placed them within the meaning of “indigent” under the statute.
Interestingly, the statute does not actually define “consumer.” However, the courts seem to be assimilating persons with low income who enter into adhesive contracts into the developing jurisprudence concerned with the high costs of arbitration for consumers. One of the primary arguments in support of mandatory consumer arbitration is “that it is less costly than civil litigation.” Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899, 919 (2015). Here, however, the evidence was that JAMS arbitrator rates (which were not disclosed) ranged from $500 to $800 per hour, or $5,000 to $10,000 per day, plus a mandatory $400 arbitration filing fee. The low cost of arbitration can be an aspiration rather than a reality, especially when claims are small, and there is a class action waiver.